A presidential panel’s bipartisan recommendations for reducing the budget deficit could save the government a couple hundred billion dollars—but at the risk of losing millions of jobs.

 

The National Commission on Fiscal Responsibility and Reform’s plan for reducing the budget deficit is “severely off track,” according to the Economic Policy Institute (EPI). “The proposal threatens to increase the already unacceptably high level of unemployment and increases the possibility of the economy falling back into outright recession by prematurely enacting sizeable austerity measures.”

 

The commission remarked that one of its “guiding principles” was not to disrupt the fragile economic recovery, but based on what was recommended, the Economic Policy Institute considered this statement little more than “lip service.”

 

According the EPI, “the savings path outlined in the Co-Chairs’ proposal would decrease GDP by $114.0 billion in 2012, $227.7 billion in 2013, and $345.0 billion in 2014… these proposals would reduce nominal GDP by 0.7% in 2012, 1.4% in 2013, and 1.9% in 2014. Using the rule of thumb that a 1% increase in GDP increases payroll employment by 1 million jobs, we estimate that Co-Chairs’ Proposal would thus reduce payroll employment by roughly 723,000 jobs in 2012, 1.4 million jobs in 2013, and 1.9 million jobs in 2014. Over the three fiscal years, employment would cumulatively fall by 4.0 million jobs-years (a standard measure of job creation representing one year of employment), relative to their current policy baseline for fiscal policy.”

 

Although the Simpson-Bowles proposal claims that it would save $482 billion, the loss of jobs would decrease consumer spending and slow economic activity, reducing the real savings to $227.9 billion.

-David Wallechinsky, Noel Brinkerhoff

 

Fiscal Commissioners’ Proposal Would Cost Millions of Jobs (by Josh Bivens and Andrew Fieldhouse, Economic Policy Institute)